Case Study: Nestlé - Streamlining IP to Stay on Top

Nestlé – a brand-driven company and world leader in the food sector, with US$70 billion sales in 2004 – has over the past 3 years carried out a fundamental review and overhaul of its intellectual property (IP) management structures. Nestlé’s IP General Counsel, Paula Nelson, speaking at the WIPO Worldwide Academy in Geneva on September 22, outlined the principal changes made by her team, and some thoughts on the Nestlé experience.

Nestlé is a highly focused company in that 96 percent of its business is food and drink. The company’s stated aim is to be number one in all its product lines, which include soluble coffee, infant nutrition, confectionery, dairy, chocolate milk, bottled water, pet foods, ice cream – to name but a few. Nestlé’s sales figures show it outselling its rivals in all these lines, except for in the ice cream sector, where it shares the top spot with Unilever. But competition is harsh and the importance of active promotion and defense of its IP assets in order to stay ahead has long been understood by Nestlé’s top management.

Streamlining the structure

Nestlé carries out research and development worldwide, but the parent company owns all the company’s IP, which it licenses out to its subsidiaries. Prior to the overhaul of the IP department, 55 lawyers around the world were involved in trademark issues. All 55 made recommendations separately to the IP lawyers back in headquarters on how things should be done on a national or regional level, “generating more heat than light,” said Ms. Nelson. The company now has 16 regionally based IP advisors reporting to headquarters, who form part of a single team.

The IP Department also revised their mission statement. This focuses on the central business goal of the company’s IP-related activity: “To generate competitive advantage through development of IP rights.” All decisions as to which products to protect, how, and where, flow from this.

Tackling brand proliferation

Having unified the IP Department at headquarters, the team set about tackling a second major problem. Nestlé’s strongest corporate brands worldwide are Nescafe, Nestlé, Nestea, Maggi, Purina and Buitoni. But additional brand names were being created each year for the local marketplaces, with the number increasing exponentially. Some were being actively used, others were not and others merely doubled up with other Nestlé brand names. This had become counterproductive. The local brands were diluting the strength of the main strategic brands – in effect competing with them – while at the same time requiring a tremendous amount of work and expense to maintain.

Following a strategic review to identify which of the brands were revenue makers, Ms. Nelson’s team drastically reduced the number of local brands to 6,000 and the strategic brands to 340. “And if you think that is still a lot, you should have seen what we had before,” she says. Some of the remaining 6,000 brands are now licensed out to third parties, who are not Nestlé affiliates, for use on unrelated products such as clothes or toys. This enables Nestlé to increase the return on its IP assets while achieving wider exposure of the brand names.

Beating back infringement

Enforcement was the third main area targeted by the Nestlé IP overhaul. Counterfeiting is on the rise, particularly within the food industry. The 2004 European Union statistics show a 12 percent increase in the value of seized counterfeit goods over 2003, and 1000 percent increase over 1998. In the food sector, seizures of counterfeit foodstuff, drinks and alcohol increased by 200 percent over 2003.

Combating counterfeiting has always been a high priority for Nestlé, not least since counterfeit food and drink products, which do not meet health and safety standards can pose a threat to the welfare of consumers. Each Nestlé subsidiary is tasked to look out for counterfeit goods and to report all cases back to headquarters, where a decision is taken on the appropriate action. Cases can involve imitation goods sold under fake Nestlé trademarks; unauthorized use of patents; Internet and domain name misuse and the derogatory use of trademarks.

Hanging quote - “No longer too polite to sue”

No case is ignored. With the cooperation of local authorities, the goods are seized and samples sent back to headquarters for analysis and future reference. As counterfeiters become ever more skilled at replicating packaging, chemical testing is sometimes required to confirm that the product is not genuine. Analysis of the products often reveals common sources with goods seized elsewhere, thus creating chains of evidence. While most cases do not go to litigation, Nestlé prosecutes several hundred major infringement cases every year. The message is clear. As Ms. Nelson puts it, “Nestle is no longer too polite to sue. Infringement will not be tolerated.”

Nestlé has put increased resources into in-house training to spot counterfeits, as well as working with governments on training programs for police and border enforcement agents. Each case of infringement has to be studied on an individual basis, taking into account the legal system of the country in question. Ms. Nelson notes that the lack of harmonization between national IP laws greatly complicates the task of effective enforcement for multinational businesses.

Lessons learnt

The streamlining of the IP Department shed light on the problems relating to the proliferation of trademarks, and made it possible to formulate a strategy to decide which were worth keeping. It also permitted Nestlé’s IP Department to work more efficiently in their fight against counterfeiting.

Ms. Nelson and her Nestlé colleagues believes that much more can be gained by working with international organizations, such as WIPO and the World Trade Organization (WTO), industry groups and enforcement agencies in countries around the world. This an area that the IP Department aims to develop further.